Thursday, April 27, 2017

Why Your Net Worth Is Bogus

I follow a few other personal finance blogs, and some of them have made reporting their net worth a monthly tradition.  They report the market value of their assets and their cash holdings, and add these together (minus liabilities) to get a net worth number.  If their net worth has increased, well...they're happy to write about it.  If it has gone down, they explain the culprits.  Some of their readers have taken to following the model, and compute their own net worth.

Have you ever tried to figure out your net worth?  At you can see that the general advice is to list all of your assets, for example,

retirement savings
value of stocks and bond
real estate (market value)
cars (market value)

and then subtract all of your debts such as what you still owe on your auto, home, education, personal, and credit card loans.

Image result for net worth

Whatever net worth number these bloggers have shared with their readers, and whatever net worth number you have figured out on your own, I'm here to tell you that it is bogus.  Why?

What happens when you sell your assets for any gains?  You are taxed!  I once liquidated an equity investment within my very taxable brokerage account with gains of $18K.  Prior to doing this, my net worth included this line item amount of +$18K.  But once I sold, my Enrolled Agent sent me a nice little letter saying I owed $2500 to the feds and $500 to the state in taxes.  So in truth, my net worth just for this line item was $3000 less!

Let's face it, your personal assets will only ever be sold for only a fraction of the value that is listed on your personal balance sheet in the event of a capital gain.  Uncle Sam will take his share, thank-you very much.  You won't be taxed on the sale of your stuff, like a slightly used titanium driver, but you sure as hell won't get back all of what you paid for it.  Over-estimating the value of cars, Armani suits, televisions, stereos, and even art, is one sure way of being completely off on your net worth calculation.

Do you know where you won't be off?  Cash.  The value of cash is what it is for any moment in time.  If you happen to have cash in a Roth IRA and keep it there until you're eligible to withdraw without any penalty, you won't incur any taxes on it.  Now, of course you'll end up losing valuable purchasing power over the years to inflation.  But at least your net worth calculation will be on point.  What about all those tax deferred saving and investing vehicles?  Traditional IRAs, 401Ks, 403bs, e.g.?  Sure it's nice to get those reports telling you the value of your investments within these vehicles.  But don't think these are true numbers for your net worth calculation.  As soon as you retire and start withdrawing...the tax man is a coming!  So, you're net worth again is really less than you think.

Be mindful of the fact that your net worth is a number that is naturally inflated and should have taxes on appreciating assets factored into.  To qualify for loans, leave as is, i.e., do not adjust it.  Banks like to see bigger numbers.  But for the purpose of figuring how well you could pay off all of your liabilities in the event of an emergency, better to shave off some from the top.  Alright friends, thanks for reading!  Until next time.  If you liked this post and want to receive more like them, please subscribe below:

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Saturday, April 22, 2017

6 Business Lessons from 4 Generations of Car Dealers

Starting a business is actually pretty easy.  It only takes an idea for a product (or products) or a service, and with some start-up capital in hand, a new business is born.  Given the Internet, starting a business is further facilitated since entrepreneurs no longer need to worry about having a brick and mortar spot to get underway.  Unfortunately, although the act of starting a business is as exciting as a new romantic relationship, things can quickly turn stressful like a divorce with kids in the picture.

The boys looking at a new Civic LX

According to, today you have slightly less than a 50-50 chance of still being in business after four years.  Incompetence (46%) is the leading cause of business failure.  Things these days are vastly different then they were back in 1928, when Theodore W. Hoehn founded Hoehn Chevrolet.  If you recall your U.S. History, a thing called, The Great Depression, began in 1929 and lasted until 1939.  Did Mr. Hoehn have perfect timing or what?  He must have been one determined man because his business survived through the Great Depression and then some.

In fact, the Hoehn family is still in the car business.  Their fourth generation of extended family work the business in Carlsbad, CA and represent eleven brands: Acura, Audi, Buick, Cadillac, GMC, Jaguar, Land Rover, Porsche, Sprinter, Mercedes-Benz and Honda.  Now I had the pleasure of taking my entrepreneurship and financial literacy elective class to the Hoehn Honda dealership as a field trip.  One that my (7th-8th) students raised transportation funds for, selling their small business products to their peers at school.  Hoehn's Corporate Chaplain happens to be a member of our school's Site Council and he, along with Hoehn's volunteer program manager (not her official title), arranged and planned a great tour.

Susanah Hoehn talking to the boys about the Service department

We toured the entire premises from the floor down to the service department, 9 stops in all.  These are the business lessons my students came away with that I felt needed to be shared here for all aspiring business owners or current owners who want to keep their business alive for four generations or more.

1.  Hire people who understand the importance of communication.  This is the mantra out on the sales floor.  Listen to the customer, know everything about your product (in this case, cars), and answer all questions with the goal of providing solutions, not being pushy.  The techniques of showing off the car will only get you so far.  You make the sale when the customer trusts he or she is making the right decision.

2.  Allow new hires to shadow the best worker in the department that you have.  We learned from the General Manager, Susanah Hoehn, the great-granddaughter of Theodore, that their top salesman (I should say, salesperson) is a woman who broke the dealership record with over 30 cars sold in one month.  She wasn't around at the time for us to talk to her.  But I did get insight from another employee as to her secret for selling so many cars: take copious notes on your customer, their needs, reservations, etc. and then follow-up numerous times.  The average sales employee gives up after three follow-ups, btw.

3.  Let people make as much money as they want.  When there is a culture that rewards hard work and initiative (wash a car without being told to, e.g.) with upward mobility, pay increases, and bonuses, businesses thrive.  Susanah Hoehn proudly shared the stories of several employees who have been with the company for many years and have remained committed to putting their best out there for customers and each other.  Starting as a cashier and working your way through the years to running an entire department isn't far fetched at Hoehn.  (Even with zero college i.e. fresh out of high school).

A technician shows the boys under the hood.

4.  Nepotism is bad for business.  Although Susanah and her sister, General Manager at another Hoehn dealership, could've been given their positions by their father, they had to earn it like any other employee.  I was told by a Hoehn employee that Susanah has worked in every department and learned how the business operates.  This has given her the experience she needs to make the right calls for the Hoehn Honda dealership.  This has also given her the respect of the workers.  They can't say she doesn't know what she's talking about, right?

5.  Be a servant as much as a leader.  While we were having lunch, I struck up a conversation with another Hoehn Honda employee.  She told me her story.  When she first arrived at Hoehn Honda, she felt out of place.  The company had a barbecue (as many often do) and she was made to feel like part of the Hoehn family by others there.  She was struck by the service the employees received, having their burgers cooked and served by none other than the Hoehn family.  For leaders out there, this is called showing your people you're there to serve as much as they are.

6.  Hire a spiritual leader.  The Hoehn dealerships have a corporate Chaplain whose job is to help all employees get through hardships, e.g., the loss of a loved one.  I'd never heard of such a thing until I met the Chaplain myself back at my school.  It's just another way the Hoehn family shows their employees they care about them and their families.        

It was clear from my vantage point that the Hoehn dealerships are in great hands and will continue to offer great service (and products) to consumers for years to come.  We were treated incredibly well despite my boys being a tough audience from time to time.  This blog post is one way I can return the favor for all of the learning and hospitality that took place on that day.

Until next time.  If you enjoyed this post and want to get more like them in your inbox, please subscribe to this blog below.  Thanks!
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Monday, April 17, 2017

The Importance of Knowing Your Health Care Costs In Retirement

So I was reading this article on Yahoo finance and thought it a dang shame that people don't know how much they'll be on the hook for in terms of health care when they retire.  The Employee Benefit Research Institute polled 1,082 workers (age 25 and older) and 589 retirees in January and only 1 in 5 have calculated what their health cares costs will be once they hang it up.  I asked myself...Well, why?

Image result for future health care costs

I mean these were (full-time) workers who probably have some sort of health care being provided by their employer as part of their benefits package, and get their check stub every month showing how much is being taken out for insurance.  They should also know how much they're spending each month on medicine, co-pays, etc.  Are they being lazy?  Do they care enough?  Is it too hard to factor in future inflation?

Out of all of the reasons mentioned above, I think the latter probably has the most to do with why 8 out of 10 workers don't have a clue how much they'll need to pay for health care in retirement.  Inflation is tricky.  (What rate will you use?)  On a side note, please don't assume Medicare will take care of your health care costs.  Premiums for all Medicare plans are going up constantly and so will your out of pocket costs.  Plus no doubt the government is going to place more accountability on you for your health expenses in the future.

Image result for future health care costs with inflation    

Why should you have an idea of how much you'll need in retirement savings to pay for health care?  For starters, so you can get a better estimate of your total retirement number.  Mine is $4.45 million by the way.  How I came up with this number will be revealed in a later post.

The data in this 2016 retirement report  is excellent:

A 65-year-old couple retiring this year will pay around $89,012 from now until they die at age 87 (male) and 89 (female) in out-of-pocket expenses with Medicare Parts B and D.  If they live longer, they'll need more obviously.  But this is good to know.

A 55-year-old couple who will be retiring in 2026 will need around $97,433 to pay for their out-of-pocket expenses until 87 & 89 years of age.

I'm 40-years-old, so knowing that a 45-year-old couple retiring in 2036 will need around $108,172 to pay for their out-of-pocket dues into their late 80s means I'll need more!

If you're interested in budgeting future monthly health care expenses, this same report breaks it down by month for the couple retiring this year.

If you want to calculate your health care costs for your particular circumstances, go to HealthView Services Health Care Cost Projector.  Don't fill in the data unless you are willing to give them your info, email, name, etc. as that is a requirement to get your individual report.  I also tried AARP's Health Care Cost calculator.  They pumped out $275K that my wife and I would need to pay for health care costs until age 89 each, retiring at age 65.  This seems pretty ridiculous, but at least I didn't need to submit my info at the site to get a number.

Image result for future health care costs with inflation

Look, even if your circumstances are bleak, meaning, you have existing conditions, low-pay, and job insecurity, you still need to make an effort to know around how much you'll need to pay for health care in your retirement years.  It's a monthly budget factor you can't ignore.  So take the time to go through the readings I've mentioned.  Try the cost calculators out.  Even if your calculations are off, it still is better than knowing nothing.

Thanks for reading!  Until next time.  If you liked this post, please subscribe by entering your email below and get more like them in your inbox.       
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Wednesday, April 12, 2017

8 of My Worst Financial Decisions During My 20s and 30s

What's up everyone!  In my last post I shared 10 of my best financial decisions during my 20s and 30s, and of course I had to next share 10 of my worsts.  First of all, I still can't believe how freakin' quickly my 20s and 30s went by.  One day you're turning 21 and your best friends are attempting to kill you with massive quantities of alcohol, and on another you're turning 38 and one beer knocks you into comatose sleep on your favorite couch.  Yes, time is the undisputed champion and we're all merely sparring partners.  But when it comes to amassing wealth, time can be our friend.

Image result for turning 21 drinking alcohol

With this post I want to specify all of the mistakes I made with my money during two pivotal decades if we consider compound interest and the importance of getting an early start.  It's my goal to have you consider your own future decision making and avoid my financial errors.  We learn better from making our own mistakes, but costly ones need not be made at all.  If we can avoid being stupid with our money by reading the stupidity of others...heck, that's even better!  So here they are in no particular order.

1)  Taking out more student loans than I needed.  While at UC Santa Barbara, circa 1996-2001, I was getting about three-quarters ($9K) of all of my expenses paid for by grants and other financial aid.  I needed about $3K in subsidized federal loans to come out even each year.  But what did I do?  I took out $5K loans instead.  With that extra $2,000, I ate like a king (shopping at Trader Joes), paid for my car insurance, gas, and who knows what.  I can't even remember it all.  End result: $40K in student loans after my undergrad and grad school.  I should've had $20K!

2)  Becoming the incredible Hulk during my undergrad years.  I went from a scrawny 160 pounds to a buffed out 182 pounds.  UC Santa Barbara was like a country club where everyone had to look like a fitness model.  (Probably still is).  Of course, being an ectomorph, I had to consume like 2000 calories a day, meaning paying for the expensive meal plan my first two years and then loading the grocery cart at Trader Joes and Albertsons my last three years.  I also spent thousands of dollars in my 20s buying whey protein all in the name of vanity.

Me with the blue lei at Goleta beach with my roommates, 1999.  The person on the left was an exchange student from Germany we dubbed, "The Guy!" 

3)  Buying a slightly used Plymouth Neon during my first year working as a public school teacher.  The car was purple!  I don't know what I was thinking back then.  While I had it, it needed engine repair, and leaked oil.  I would eventually donate it to charity.  But boy did I spend money on that car.

4)  Buying a McMansion as a personal residence.  In my last post you learned how I have made money from my home.  This doesn't negate the fact that my ex-wife and I bought way too much house.  The mistake I made was leaving a hot real estate market like Silicon Valley after selling our townhouse in 2005, and thinking all markets in California were similar.  So when we saw a 3200 sq. ft. home only five miles from the beach in Oceanside being sold for only $745K, we assumed it was a deal.  In San Jose, a similar home would have been sold for a million.  This was during the housing market bubble.  In a post about refinancing your home, I mentioned how little money we get back come tax time from mortgage interest.  So I've paid thousands of dollars in interest already.  Property taxes are $6K a year!  And furnishing it was no joke.

5)   Buying a classic car.  So for my 30th birthday, I thought it deserving to buy myself a 1965 Corvair Monza.  Price tag: $6500 on Ebay, btw.  At the time, I knew nothing about how classic cars were valued or even how or why they'd increase or decrease in value.  I was going through some weird pseudo-mid life crisis and thought $6 g's was a small price to pay for my very own So Cal cruising machine.  I spent another $1K on a sound system.  When it was time to propose to Jessica, I needed cash for a diamond ring so I put up the car for sale.  Long story short, I only got $3500 for it.  Jessica got one carat instead of two because of it, LOL!

6)  Getting a divorce.  This one was for the best and in the end everything worked out but at the time my ex-wife and I were pulling in nearly $11K a month as school administrators.  We jointly owned the McMansion from #4 above and a time share we had gotten suckered into in Charleston, SC.  Our split was amicable and she agreed to let me keep the house in return for about $2500 cash (half the appraised value of the furnishings, electronics, etc).  Why?  The housing market had crashed and the McMansion was (still is) upside down.  Plus she was moving out of the area.  It became my new bachelor pad and I rented out three rooms for a stretch of three years.  However, this is something I needed to do to stay afloat.  I couldn't afford the mortgage, taxes, insurance, and maintenance on my own salary.  Glad we didn't have kids or the divorce would've been worse!  Oh and she kept the time share which was fine by me.

7)  Spending about $20K on a wedding.  My ex-wife wanted the full wedding experience in 2003.  We lived in San Jose at the time.  We got a florist, photographer, and wedding planner from San Francisco.  And of course it was all for naught.  See #6 divorce at top.  I'm so glad Jessica agreed to a courthouse wedding in San Marcos, CA.  We saved so much money!

8) Spending over $10K to remodel my master bedroom and bathroom (DIY status).  It was really cool to do most of the work, and our master bedroom and bath look awesome, but in all honesty, I still consider it a financial mistake.  I could've put that money to work and be closer to buying another rental property.  Your personal residence is a liability no matter what you do to it.  Sure it may appreciate in value, but over the course of 30 years, your outflow of cash far exceeds what you will most likely profit from it.

Alright, so there you have the 8 worst financial mistakes of my 20s and 30s.  I also had two kids in my late 30s and they would be considered big financial mistakes in some circles.  But thankfully, life isn't all about money.  I mean, look at these two cuties:

Priceless!  Alright my peeps, I am out.  Until the next one.
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Thursday, April 6, 2017

10 Of My Best Financial Decisions During My 20s and 30s

I turned 40 last September and it felt pretty darn good.  Don't take me wrong, getting old sucks, but fortunately I reached this milestone in excellent health and with solid financial footing.  The health thing is important.  Look, do you want to live a long life with quality?  You better stay in shape, and lift weights.  I'm telling you as a person who has exercised consistently since grade school, you look and feel the way you have treated your body over time.  With health care costs high and in limbo right now, staying healthy will save you thousands of dollars in mid or late life.

Image result for So this is 40

But this post is about the financial decisions I made during my twenties and thirties.  Those that have given me an above average standard of life, retirement savings, and wealth.  I'd like to share these decisions with you and reveal an underlying theme toward the end.  It's my intention for you to get ideas, and perhaps take similar action so that you can improve your own finances and wealth accumulation circumstances.  And with that...we're off.  Here they are in chronological order.

1) Got the highest paying job I could land in my industry.  I started my professional teaching career out of grad school in 2001.  By 2005, I was an assistant principal at a high school in So. Cal making over $100K.  Had I stayed a teacher, I would've been making in the mid $50K.  The extra income allowed my debt to income ratio to look better on mortgage applications.

2) I used my credit accordingly and appropriately.  From college (age 18-24, including grad school), I safeguarded my credit, using my one credit card only to make small purchases I could pay off within one to three months time.  If I couldn't pay it off in three maximum installments, I didn't use my card!  The strategy worked well so that by the time I applied for my first personal residence mortgage, my credit score was in the 700s.  When I applied for the home I'm living in today in So. Cal, my credit score was in the low 800s, and my income had doubled!

3)  I taught at an urban school and had $15K of my student loans assumed over the course of four years by the now defunct APLE program.  Thanks CA!  I finished my undergrad and grad school with only $40K of student loans, and I only had to pay $25K of it.  I did this with haste and made my last student loan payments in 2010.

4) I committed time to learning all about stocks and the stock market.  I spent a few hundred dollars on books.  I did also make good use of my library card.  Since 2011, I've made a net profit of $19K (a 12% return on my money) and $12K of this money is going to be tax free since it was earned in one of my Roth IRA accounts.  Not too shabby for a self-taught equities investor who picks his own stocks.  As a college student, I knew nothing about trading stocks.  I became a student of the market in my early thirties, seeing some of my teacher colleagues involved.

Image result for Stock Market

5) I got my first Roth IRA, and built it up enough with savings to take advantage of the current bull market in stocks.  I took money from this Roth IRA and used it to fund a second Roth IRA which I used to purchase shares in  That initial $10K investment in 2014 is worth $13K today.  Get a Roth IRA!  Invest within it!

Image result for 403b

6) I started contributing to a 403b annuity in my 5th year as an educator.  The mistake I made was keeping it at a fixed 3% interest rate for multiple years.  I was concerned about being over-exposed to the market since I was already trading heavily in my Brokerage and Roth Accounts.  Of course I missed many of the years of the current bull market.  Regaining my senses, I changed the annuity to variable interest, and spread my contribution 80% Stocks (Vanguard's Total Stock Market fund with the lowest expense ratio) and 20% Bonds (Total Bond Market fund with lowest expense ratio).  I did this 3 years ago and have had some nice gains.  People with 401ks, if you have choice in the matter, don't over complicate your portfolio, choosing a myriad of funds simply because your employer allows it.  Find a low cost Target Date fund or do what I did, get yourself a low-cost index stock and bond fund.  That's it!

7) I took profits from the stock market and savings from my hustles and job and bought three rental properties out of state at the bottom of the real estate market, between 2011 and 2013.  I'm happy to report that the three properties, all cash-flowing, have appreciated in value!  When I retire, I'll have a nice income stream from my real estate holdings.

8)  I didn't and haven't made my personal residence a money pit.  With the exception of a master bath and bedroom remodel and a solar installation, I've limited dropping serious money on my personal residence.  In fact, since 2005, I've rented rooms to Marines and collected income off my residence.  I currently have one room in my home rented to a Gunny; he's actually lived with me so long we consider him part of the family.  I never tried keeping up with the Joneses.

9) I bought a slightly used 2007 Honda Civic Ex in late 2007.  I still have the car.  It was paid off in 2013 and only has 123K miles on it.  The only thing I've needed to pay for are brakes, tires, oil changes, and one single tune-up.  I'm going to use it and be car note free for at least another three years.

10) I started freelance writing and this blog as side-hustles.  I've made over $20K in three and a half years.  You gotta work it my friends!

Well, the moral of this lesson is that you have to be willing to act and take risks.  You're not going to get anywhere over thinking things and being risk averse.  The stock market, for example, is one of the most democratic ways people can make money.  It's available to anyone with a computer, some money, and an Internet account.  Yet, many of you are too scared to take part in it.  That's a shame.  Listen, if any of this has struck a cord with you, please share your comments below.  May your financial decisions bring you prosperity and wisdom.  Peace!

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Sunday, April 2, 2017

4 Ways to Save Money With Your Pantry

The pantry is one of those places in our homes where money is hard to track.  It's nice to have a pantry, for it adds convenience and food security to our lives.  But it also adds disorder.  There are probably some people out there that know exactly what's in their pantry, and even how much money they got in it.  They would be the obsessive compulsive type.  The rest of us have a lot of work to do if saving more money is a goal.

Image result for cluttered pantry

I hate coming back from the store with things that I thought I needed but really didn't because I didn't check the pantry well enough before I left.  Do we really need four jars of spaghetti sauce in our shelves?  No, but you didn't notice the pair of them behind the boxes of pasta.  No doubt you have experienced financial frustration with your pantry as I have.  Hopefully, following these 4 tips will get you the most out of your pantry:

1.  Organize your pantry.  Placing items on your pantry shelves without a system is easy to do.  Set it down and forget it.  But this is exactly what gets us all in trouble.  Here are 5 strategies that will transform your pantry and make it Pinterest worthy.

Image result for organized pantry

2.  Have a Pantry Challenge.  A pantry challenge is basically when you eat down your pantry.  You use what you have in your pantry in as many meals as possible.  By forcing yourself to incorporate items already in the pantry into meals you concoct, you discover what things you'll never buy again.  You'll also rotate your pantry's stock.  It takes preparation to do a pantry challenge.  You'll need to figure out what you'll be cooking based on an inventory of the various foods, spices, and condiments in your pantry.  The effort is worth it.

3.  Take several pictures of what's on the pantry shelves and go match at your nearest Dollar store.  You may be surprised what's being sold at the Dollar store that you paid full price for at the grocery store.  If you see that the Dollar store has several of the food items already in your pantry, you can forego getting these at the grocery store and save $5-$15 easily each shopping trip.  Of course you'll have to drive to one additional place, but the savings is again, very worth it.

4.  Donate to a canned food drive.  Getting rid of the clutter will open up your pantry and let you see what you already have in there a whole lot better.  This will prevent your buying duplicates at the store.  (A mistake I've made many times).  Plus giving to the needy also makes you feel good inside.

Alright my friends.  Don't let your pantry swallow your cash.  Follow these tips to make your pantry a lean machine of savings.  Thanks for reading!  If you liked this post and want to read more like them in your inbox, please subscribe below.
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